Marathon profits tumble in 3rd quarter

Lower margins taking a toll on crude-oil refining industry

FINDLAY — Profits for Marathon Petroleum Corp. fell 86 percent in the third quarter as the company fell prey to lower profit margins that have buffeted the refining industry.

The Findlay company, which owns six refineries and sells its products through its Speedway gas station chain, on Thursday reported a quarterly profit of $168 million, or 54 cents a share.

That compared with net profits of $1.2 billion, or $3.59 a share, during the same July-September period a year ago.

For the period, Marathon’s revenues increased nearly 24 percent to $26.3 billion, up from $21.2 billion for the third quarter of 2012.

Gary Heminger, Marathon’s president and chief executive officer, said during the quarter the refining industry as a whole — and his company in particular — battled lower crack spread, narrow crude oil differentials, and backward price movement in the crude oil market.

Marathon Petroleum, which owns six refineries, including this one in Canton in northeast Ohio, sells its products through Speedway.Enlarge

The crack spread describes the difference between the price of crude oil and petroleum products that are extracted from it. It refers to the profit margin that an oil refinery can make by “cracking” crude oil, that is breaking it down through the refining process into more useful petroleum products like gas or diesel.

Marathon said its income from its refining and marketing segment fell to $227 million in the third quarter, compared to $1.69 billion in the third quarter of 2012. The company said that in the third quarter its gross margin for refining a barrel of crude was $2.55 a barrel, while in 2012’s third quarter the gross margin was $13.12 per barrel.

On the Chicago and Gulf Coast markets, the crack spread fell to $6.52 per barrel in the third quarter, compared to $11.81 per barrel a year ago, Marathon said.

The company also was hurt by tighter differences between the prices of sour crude oil, which has a high sulfur content, and sweet crude, which has less sulfur. Swings in those prices can hurt refiners if they use one kind of oil but compete against another refiner that uses the other kind.

Marathon refines a lot of West Texas Intermediate crude, which is considered light and sweet. It had been heavily discounted compared to the benchmark European North Sea “Brent” crude, which is sour, or contains higher levels of sulfur. But in the third quarter, the price differences between sweet and sour crude narrowed by 46 percent, or about $5.67 a barrel, and West Texas Intermediate in particular, was hit hard, narrowing by $13.05 a barrel.

Mr. Heminger told industry analysts during a conference call Thursday that the financial pressure on the oil industry was because of high levels of production in the quarter. “Incremental inventories held within the United States during the hurricane season also contributed to excess transportation fuel inventories, because there were no significant adverse weather impacts this year,” Mr. Heminger said.

On the positive side, the CEO said Marathon spent nearly $1.2 billion on a combination of dividends and share repurchases to enhance shareholder value during the quarter.

Since Marathon Petroleum became a public company in June, 2011, it has increased its dividend 110 percent and repurchased nearly $3.7 billion, or 17 percent of its shares.

The company spent nearly $1 billion in the third quarter to buy back about 14 million shares. On Wednesday it declared a third-quarter dividend of 42 cents per share, which will be payable Dec. 10.

In other news Thursday, MPLX Limited Partnership, its subsidiary that controls the parent company’s pipelines and storage facilities, reported a third-quarter profit of $21.5 million, or 29 cents per share, on revenues of $123.8 million. MPLX LP was formed exactly one year ago.

On Oct. 22, MPLX declared a dividend of 30 cents per share.

In trading Thursday on the New York Stock Exchange, Marathon Petroleum’s stock closed at $71.64, down 87 cents or 1.2 percent. MPLX stock rose 27 cents, or 0.7 percent, to close at $37.17 a share.

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